Social responsibility is beginning to take root

For at least 50 years, the concept of social responsibility has been discussed in business circles and in the press. Consumer watchdogs and advocacy groups have pleaded with companies to take into account the effect of their actions on all of their stakeholders, not just the stockholders.

Milton Friedman argued that corporations had only one social responsibility, and that was to “maximize” their return to stockholders. However, he also said that in exercising that responsibility, they had to comply with the rules of the game — which was to say, they had to operate openly and fairly. Ralph Nader and others active in the debate those decades ago argued that “reasonable profits” were quite acceptable as long as the other stakeholders were properly taken into account. Legislation was routinely advocated when they were not.

Social responsibility a matter of enlightened self-interest

As the decades unfolded, most companies pretty much followed an enlightened-self-interest model, which allowed reasonable expenditures on philanthropy and other types of social actions that could be expected to serve the long-term interests of the corporation. The stockholder normally tolerated such expenditures when times were good and profits were meeting normal expectations.

Many new initiatives were introduced in service of the notion of social responsibility, and the initiatives were particularly robust in the soul-searching that followed the Vietnam War.

We saw social audits, social responsibility committees on the board, codes of conduct, corporate ethicists, ombudsmen, social responsibility officers, the advent of social investment funds, social responsibility journals, and social responsibility courses in every business school in the country.

Arguably all of these initiatives have had some positive impact on business behavior. How much and for how long is not known, but certainly they have not been enough to overcome the abuses of some, the greed of others, and the pressures of managing in difficult economic times and in the face of global competition.

Recent years, however, have seen the beginnings of a new wave of social responsibility with roots in entrepreneurship and in firms which as often as not are run by young innovative people steeped in the ways of the digital economy and committed to sustainability in all that they do.

An emerging national movement

Nationally, we see this in developments like the establishment of the American Sustainable Business Council — www.asbcouncil.org — less than two years ago to give business an alternative voice committed to policies that build a sustainable economy. They now are affiliated with organizations representing more than 60,000 businesses and are making themselves heard.

Also, a nonprofit known as B Labs was established to bring the power of business to solve social and environmental problems by establishing so-called B Corps, which would require directors to consider the employees, the community and the environment in addition to shareholders’ value when making decisions. They would have an obligation to create public benefit and to disclose their annual progress in compliance with an external assessment process.

Locally, it has been heartening to see the Hawaii Senate pass and send to the House a bill, S.B. 298, to allow companies to incorporate as “sustainable business corporations.” The bill would give entrepreneurial companies determined to serve the public good the opportunity to incorporate in a way that publicly commits its directors to managing the business in a sustainable and socially responsible way. Similar bills have been enacted in New Jersey, Maryland and Vermont.

A clear indication that this is an idea whose time has come is the fact that the bill has drawn warm support from several business entities. Early supporters include the Chamber of Commerce of Hawaii, the Hawaii Venture Capital Association and the Entrepreneurs Foundation of Hawaii established by John Dean, the executive chairman of Central Pacific Bank, to make it easy for entrepreneurial startups to give back to the community.

By enacting S.B. 298, the Legislature could send a clear message that Hawaii is a place where “managing with aloha” can have practical and lasting consequences. And, it is a place where the triple bottom line — profit, planet, people — is more than just a slogan.